Budget Problems of Saudi Arabia: Consequences in the Sphere of Security and Regional Policy

http://www.ejournals.eu/Securitologia/ Securitologia No 2/2018 Maciej Münnich The John Paul II Catholic University of Lublin, Poland ORCID: https://orcid.org/ 0000-0003-0063-2799 Budget Problems of Saudi Arabia: Consequences in the Sphere of Security and Regional Policy Abstract The article presents an analysis of the Fiscal Balance Program, which has been implemented in Saudi Arabia since the beginning of 2017. The text discusses budget data from recent years and budget assumptions for 2018, and then assesses the extent to which they have a chance of implementation. The second part of the article describes political threats. The conclusion of the article emphasized that economic assumptions are difficult to achieve, but possible, however, one should take into ac- count the delay in their implementation. The real challenge for implementing the plan to heal the finances of the state will be the inevitably impending moment of change on the throne, when internal problems can lead to uncontrolled changes, and external competitors may try to take advantage of this crucial moment. Keywords: Saudi Arabia, Fiscal Balance Program, Vision 2030, Middle East Creating the English-language version of the journal “Securitologia” is financed under contract No. 724/P- DUN/2018 from the funds allocated by the Minister of Science and Higher Education for dissemination of science. DOI: 10.4467/24497436SCU.18.013.11256 ISSN: 1898-4509 e-ISSN: 2449-7436 online pdf E-mail contact to the Author: [email protected] 27 Maciej Münnich Introduction The Middle East has been constantly torn apart by conflicts for a hundred years, the fall of the Ottoman Empire. One of them is the endless dispute around Palestine. An- other is due to the progressive radicalization of some groups building their identity on extreme forms of Islam and manifests itself in the clash of such a vision with a more moderate or even secular vision of the state. The most painful example of such a group- ing is the Islamic State, although it is not the only organization of this type. Another conflict is the Kurdish problem, affecting Turkey, Iraq, Iran and Syria. An- other important conflict in the Middle East is the dispute between the Sunni and Shiite branch of Islam. And although it stems from religious premises, it has its obvious political repercussions due to the struggle for local hegemony over the Middle East by Shi'ite Iran and Sunni Saudi Arabia. Turkey should be added to the claimants for the role of a hegemon, trying to rebuild its dominant position. Finally, great world powers also maintain their influence in the region. First of all, they are the United States, whose closest allies are Israel and Saudi Arabia. It was these countries that were the first desti- nation of the foreign trip of President Donald Trump, which perfectly shows their im- portance in world politics. At the same time, Russia is rebuilding its influence in the region by cooperating with Iran and Syria, as well as with Turkey, i.e. Saudi competitors. It is important that Saudi Arabia plays an important role in virtually all of the conflicts listed above. Most extreme religious groups are associated with a radically Salafist version of Islam, which is very close to Wahhabism dominating the Saudi kingdom. This interpretation of Islam is also the most hostile to Shiites. It is not surprising then that Saudi Arabia and Iran clash in many fields, sometimes waging substitute wars such as in Syria or Yemen. It is also no accident that Saudi Arabia supports the Kurds, which is intended to weaken the main competitors to hegemony in the region. Finally, it is Saudi Arabia, especially recently, which is establishing stronger contacts with Israel and is accused in the Arab world of abandoning the Palestinian case, while Iran is fooling with anti-Israeli slogans, while Turkey hesitates to take different attitudes depending on the situation. So a quiet coalition of Israel and Saudi Arabia is formed against Iran and its allies. She enjoys the support of President Donald Trump, known for his anti-Iran rhetoric. 28 Use of Retired Officers in Police Education There is therefore no doubt that the involvement of Saudi Arabia is important in resolving most of the conflicts in the Middle East. Of course, the country’s position is largely due to its role in the global economy. We are talking about the largest global oil exporter. In addition, the Saudi kingdom is the leader of the Gulf Cooperation Council and has a dominant voice in the Organization of the Petroleum Exporting Countries (OPEC), which further increases its position on the oil market. It is not surprising then that Saudi Arabia is widely perceived as a country with a huge, almost infinite number of petrodollars. However, the reality is not so simple. Since oil prices have fallen sharply in the second half of 2014, Riyadh’s economic situation has become increasingly difficult to gradually lead to a practical collapse of the budget. This caused Saudi Arabia to be threatened by the specter of losing its economic and, consequently, political position. The kingdom authorities are therefore trying to repair the difficult budget situation at the price of large savings on the one hand and significant investments on the other. The article presents an analysis of the Saudi Arabia State Finance Remedial Program implemented since the beginning of 2017. At the beginning, the initial situation of the 2015-2016 budget and the major recovery program that began to be implemented in 2017 will be presented. Since we have data for 2017, we can assess to what extent these attempts have been successful. This analysis will concern both the size of the deficit and the structure of budget revenues and expenses. Then, the budget assumptions for 2018 will be discussed, with particular emphasis on planned GDP growth, the amount and structure of spending and revenue and the possibility of covering the deficit. After presenting budget data from recent years and the budget for 2018, you can already an- swer to what extent recovery plans are realistic in economic terms. However, apart from the economy, politics also influences the possibility of implementing reforms, which is why the second part of the article describes political threats. It was divided into threats arising from the internal political situation and those that carries foreign policy led by Saudi Arabia. The article ends with a summary containing conclusions on the possibilities of successful implementation of planned and ongoing budget reforms and critical points of the recovery program. 29 Maciej Münnich Initial situation From the point of view of Saudi Arabia’s budget, 2015 was a catastrophic year. The state budget deficit this year amounted to SAR 367 billion ($ 98 billion), which ac- counted for 14.8% of GDP. Therefore, the authorities of Saudi Arabia began intensive work on economic reforms. Their broad plan was included in the Vision 2030 program presented in April 20161. However, this plan is – as the name implies – rather a vision of how the authorities would like the country to look in a dozen or so years. To this end, a reconstruction of the economy was announced to lead to more independence from its extraction and export of crude oil. Significant changes in social policy were also assumed, including broader access of women (i.e. half the population) to the labour market. These plans are so long-term and general that it is difficult to assess their implementation in the short term. On the other hand, the budget crisis demanded decisive, quick and most importantly concrete actions. Therefore, as part of the Vision 2030 program, a program for healing state finances, i.e. the Fiscal Balance Program 2020 (2016), was also created. It has been prepared in three versions, due to the information policy referred to as: “basic” (liquidation of the budget deficit in 2019), “conservative” (elimination of the budget deficit in 2020) and “very conservative” (small budgetary deficit in 2020). In fact, one should rather assume that the “conservative” version is the basic one, the “very conservative” one is a pessimistic option, while the “basic” one is the optimistic version. The plan assumed that in 2016, that is when the program was being developed, the deficit in every possible version of the program would amount to SAR 297 billion (about $ 79 billion). Interestingly, the draft Saudi budget for 2016 assumed a larger deficit of SAR 326 billion (about $ 87 billion) (Al Arabiya News 2015). Although the final deficit for 2016 turned out to be slightly smaller, as it amounted to SAR 311 billion (about $ 83 billion) (General Authority for Statistics 2016, Chapter 11: Financial and Mon- etary Affairs and National Accounts (Actual Revenues & Expenditures for the Kingdom’s General Budgdet), but at the outset the plan was a bit out of the picture: it was “slightly” around $ 4 billion, or around 4.5% of the total deficit. This was due to lower than expected 1 This vision has been supplemented with a slightly more accurate and intended to close in a shorter time perspective (first five-year) National Transformation Program 2020 (2016). In the middle of 2017, another document was also published, more specifically discussing individual projects within the entire program, Strategic Objectives and Vision Realization Programs. 30 Use of Retired Officers in Police Education revenues (instead of SAR 528 billion there were 519 billion SAR) and larger expenses (instead of 825 billion SAR there was 830 billion SAR) in 2016. Although the deficit in absolute numbers in 2015-2016 decreased quite significantly (from SAR 367 billion to SAR 311 billion), but in relation to to GDP in 2016 amounted to as much as 12.8% (Ibidem), which was a very worrying result, although better than in the previous year.

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